Explain about the bank failure and about the Indy Bank?

Question

I saw in the news today about the Indy Bank failure, in the news people lined up in a very long line to get their money back.

Did the people that saved money their in the bank lost it?

Why are people lined up to get their money back?

Did they loose some money? explain what happened and such?

Answer 1

A "run on the bank" occurs because people are concerned they may not be able to get their money back if they wait.

Even a bank with sufficient assets cannot withstand a run, because their assets are tied up in loans... if everybody wants to get all their cash out at once, it's just not going to happen.

Government insurance provides confidence that should help to avoid a run, but because it is capped, and some depositors have amounts in excess of the cap, these people are definitely going to pull out the excess money if there's any rumor of a problem.

People whose funds do not exceed the cap may still pull their money out because they're concerned that it may take some time before they may be able to get their money.  In fact, Indy Mac depositors had access to their accounts on the Monday morning after the Feds shut them down.